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Articles 1051 - 1080 of 2930
Full-Text Articles in Social and Behavioral Sciences
Mediation And Peace, Johannes Hörner, Massimo Morelli, Francesco Squintani
Mediation And Peace, Johannes Hörner, Massimo Morelli, Francesco Squintani
Cowles Foundation Discussion Papers
This paper brings mechanism design to the study of conflict resolution in international relations. We determine when and how unmediated communication and mediation reduce the ex ante probability of conflict, in a simple game where conflict is due to asymmetric information. Unmediated communication helps reducing the chance of conflict as it allows conflicting parties to reveal their types and establish type-dependent transfers to avoid conflict. Mediation improves upon unmediated communication when the intensity of conflict is high, or when asymmetric information is large. The mediator improves upon unmediated communication by not precisely reporting information to conflicting parties, and precisely, by …
The Value Of Luminosity Data As A Proxy For Economic Statistics, Xi Chen, William D. Nordhaus
The Value Of Luminosity Data As A Proxy For Economic Statistics, Xi Chen, William D. Nordhaus
Cowles Foundation Discussion Papers
One of the pervasive issues in social and environmental research has been to improve the quality of socioeconomic data in developing countries. Because of the shortcoming of standard data sources, the present study examines luminosity (measures of nighttime lights) as a proxy for standard measures of output. The paper compares output and luminosity at the country levels and at the 1° x 1° grid-cell levels for the period 1992-2008. The results are that luminosity has very little value added for countries with high-quality statistical systems. However, it may be useful for countries with the lowest statistical grades, particularly for war-torn …
Should Auctions Be Transparent?, Dirk Bergemann, Johannes Hörner
Should Auctions Be Transparent?, Dirk Bergemann, Johannes Hörner
Cowles Foundation Discussion Papers
We investigate the role of market transparency in repeated first-price auctions. We consider a setting with private and independent values across bidders. The values are assumed to be perfectly persistent over time. We analyze the first-price auction under three distinct disclosure regimes regarding the bid and award history. Of particular interest is the minimal disclosure regime, in which each bidder only learns privately whether he won or lost the auction at the end of each round. In equilibrium, the winner of the initial auction lowers his bids over time, while losers keep their bids constant, in anticipation of the winner’s …
Should Auctions Be Transparent?, Dirk Bergemann, Johannes Hörner
Should Auctions Be Transparent?, Dirk Bergemann, Johannes Hörner
Cowles Foundation Discussion Papers
We investigate the role of market transparency in repeated first-price auctions. We consider a setting with independent private and persistent values. We analyze three distinct disclosure regimes regarding the bid and award history. In the minimal disclosure regime each bidder only learns privately whether he won or lost the auction. In equilibrium the allocation is efficient and the minimal disclosure regime does not give rise to pooling equilibria. In contrast, in disclosure settings where either all or only the winner’s bids are public, an inefficient pooling equilibrium with low revenues exists.
Why Does Bad News Increase Volatility And Decrease Leverage?, Ana Fostel, John Geanakoplos
Why Does Bad News Increase Volatility And Decrease Leverage?, Ana Fostel, John Geanakoplos
Cowles Foundation Discussion Papers
A recent literature shows how an increase in volatility reduces leverage. However, in order to explain pro-cyclical leverage it assumes that bad news increases volatility, that is, it assumes an inverse relationship between first and second moments of asset returns. This paper suggests a reason why bad news is more often than not associated with higher future volatility. We show that, in a model with endogenous leverage and heterogeneous beliefs, agents have the incentive to invest mostly in technologies that become more volatile in bad times. Agents choose these technologies because they can be leveraged more during normal times. Together …
Why Does Bad News Increase Volatility And Decrease Leverage?, Ana Fostel, John Geanakoplos
Why Does Bad News Increase Volatility And Decrease Leverage?, Ana Fostel, John Geanakoplos
Cowles Foundation Discussion Papers
The literature on leverage until now shows how an increase in volatility reduces leverage. However, in order to explain pro-cyclical leverage it assumes that bad news increases volatility. This paper suggests a reason why bad news is more often than not associated with higher future volatility. We show that, in a model with endogenous leverage and heterogeneous beliefs, agents have the incentive to invest mostly in technologies that become volatile in bad times. Together with the old literature this explains pro-cyclical leverage. The result also gives rationale to the pattern of volatility smiles observed in the stock options since 1987. …
Why Does Bad News Increase Volatility And Decrease Leverage?, Ana Fostel, John Geanakoplos
Why Does Bad News Increase Volatility And Decrease Leverage?, Ana Fostel, John Geanakoplos
Cowles Foundation Discussion Papers
A recent literature shows how an increase in volatility reduces leverage. However, in order to explain pro-cyclical leverage it assumes that bad news increases volatility, that is, it assumes an inverse relationship between first and second moments of asset returns. This paper suggests a reason why bad news is more often than not associated with higher future volatility. We show that, in a model with endogenous leverage and heterogeneous beliefs, agents have the incentive to invest mostly in technologies that become more volatile in bad times. Agents choose these technologies because they can be leveraged more during normal times. Together …
Estimation And Inference With Weak, Semi-Strong, And Strong Identification, Donald W.K. Andrews, Xu Cheng
Estimation And Inference With Weak, Semi-Strong, And Strong Identification, Donald W.K. Andrews, Xu Cheng
Cowles Foundation Discussion Papers
This paper analyzes the properties of standard estimators, tests, and confidence sets (CS’s) for parameters that are unidentified or weakly identified in some parts of the parameter space. The paper also introduces methods to make the tests and CS’s robust to such identification problems. The results apply to a class of extremum estimators and corresponding tests and CS’s that are based on criterion functions that satisfy certain asymptotic stochastic quadratic expansions and that depend on the parameter that determines the strength of identification. This covers a class of models estimated using maximum likelihood (ML), least squares (LS), quantile, generalized method …
Inference Based On Conditional Moment Inequalities, Donald W.K. Andrews, Xiaoxia Shi
Inference Based On Conditional Moment Inequalities, Donald W.K. Andrews, Xiaoxia Shi
Cowles Foundation Discussion Papers
In this paper, we propose an instrumental variable approach to constructing confidence sets (CS’s) for the true parameter in models defined by conditional moment inequalities/equalities. We show that by properly choosing instrument functions, one can transform conditional moment inequalities/equalities into unconditional ones without losing identification power. Based on the unconditional moment inequalities/equalities, we construct CS’s by inverting Cramér–von Mises-type or Kolmogorov–Smirnov-type tests. Critical values are obtained using generalized moment selection (GMS) procedures. We show that the proposed CS’s have correct uniform asymptotic coverage probabilities. New methods are required to establish these results because an infinite-dimensional nuisance parameter affects the asymptotic …
Inference Based On Conditional Moment Inequalities, Donald W.K. Andrews, Xiaoxia Shi
Inference Based On Conditional Moment Inequalities, Donald W.K. Andrews, Xiaoxia Shi
Cowles Foundation Discussion Papers
In this paper, we propose an instrumental variable approach to constructing confidence sets (CS’s) for the true parameter in models defined by conditional moment inequalities/equalities. We show that by properly choosing instrument functions, one can transform conditional moment inequalities/equalities into unconditional ones without losing identification power. Based on the unconditional moment inequalities/equalities, we construct CS’s by inverting Cramér-von Mises-type or Kolmogorov-Smirnov-type tests. Critical values are obtained using generalized moment selection (GMS) procedures. We show that the proposed CS’s have correct uniform asymptotic coverage probabilities. New methods are required to establish these results because an infinite-dimensional nuisance parameter affects the asymptotic …
Inference Based On Conditional Moment Inequalities, Donald W.K. Andrews, Xiaoxia Shi
Inference Based On Conditional Moment Inequalities, Donald W.K. Andrews, Xiaoxia Shi
Cowles Foundation Discussion Papers
In this paper, we propose an instrumental variable approach to constructing confidence sets (CS’s) for the true parameter in models defined by conditional moment inequalities/equalities. We show that by properly choosing instrument functions, one can transform conditional moment inequalities/equalities into unconditional ones without losing identification power. Based on the unconditional moment inequalities/equalities, we construct CS’s by inverting Cramér-von Mises-type or Kolmogorov-Smirnov-type tests. Critical values are obtained using generalized moment selection (GMS) procedures. We show that the proposed CS’s have correct uniform asymptotic coverage probabilities. New methods are required to establish these results because an infinite-dimensional nuisance parameter affects the asymptotic …
The Role Of Commitment In Bilateral Trade, Dino Gerardi, Johannes Hörner, Lucas Maestri
The Role Of Commitment In Bilateral Trade, Dino Gerardi, Johannes Hörner, Lucas Maestri
Cowles Foundation Discussion Papers
This paper solves for the set of equilibrium payoffs in bargaining with interdependent values when the informed party makes all offers, as discounting vanishes. The seller of a good is informed of its quality, which affects both his cost and the buyer’s valuation, but the buyer is not. To characterize this payoff set, we derive an upper bound, using mechanism design with limited commitment. We then prove that this upper bound is tight, by showing that all its extreme points are equilibrium payoffs. Our results shed light on the role of different forms of commitment on the bargaining process. In …
Estimated Macroeconomic Effects Of A Chinese Yuan Appreciation, Ray C. Fair
Estimated Macroeconomic Effects Of A Chinese Yuan Appreciation, Ray C. Fair
Cowles Foundation Discussion Papers
This paper uses a multicountry macroeconometric model to estimate the macroeconomic effects of a Chinese yuan appreciation. The estimated effects on U.S. output and employment are modest. Positive effects on U.S. output from a decrease in imports from China are offset by negative effects on U.S. output from increased inflation and from a decrease in U.S. exports to China because of a Chinese contraction.
Dynamic Auctions: A Survey, Dirk Bergemann, Maher Said
Dynamic Auctions: A Survey, Dirk Bergemann, Maher Said
Cowles Foundation Discussion Papers
We survey the recent literature on designing auctions and mechanisms for dynamic settings. Two settings are considered: those with a dynamic population of agents whose private information remains fixed throughout time; and those with a fixed population of agents whose private information changes across time. Within each of these settings, we discuss both efficient (welfare-maximizing) and optimal (revenue-maximizing) mechanisms.
Targeting In Advertising Markets: Implications For Offline Vs. Online Media, Dirk Bergemann, Alessandro Bonatti
Targeting In Advertising Markets: Implications For Offline Vs. Online Media, Dirk Bergemann, Alessandro Bonatti
Cowles Foundation Discussion Papers
We develop a model with many advertisers (products) and many advertising markets (media). Each advertiser sells to a different segment of consumers, and each medium has a different ability to target advertising messages. We characterize the competitive equilibrium in the media markets and evaluate the implications of targeting in advertising markets. An increase in the targeting ability leads to an increase in the total number of purchases (matches), and hence in the social value of advertising. Yet, an improved targeting ability also increases the concentration of firms advertising in each market. Surprisingly, we then find that the equilibrium price of …
Affective Decision-Making: A Theory Of Optimism-Bias, Anat Bracha, Donald J. Brown
Affective Decision-Making: A Theory Of Optimism-Bias, Anat Bracha, Donald J. Brown
Cowles Foundation Discussion Papers
Optimism-bias is inconsistent with the independence of decision weights and payoffs found in models of choice under risk, such as expected utility theory and prospect theory. Hence, to explain the evidence suggesting that agents are optimistically biased, we propose an alternative model of risky choice, affective decision-making, where decision weights — which we label affective or perceived risk — are endogenized. Affective decision making (ADM) is a strategic model of choice under risk, where we posit two cognitive processes: the “rational” and the “emotional” processes. The two processes interact in a simultaneous-move intrapersonal potential game, and observed choice is the …
Estimated Macroeconomic Effects Of The U.S. Stimulus Bill, Ray C. Fair
Estimated Macroeconomic Effects Of The U.S. Stimulus Bill, Ray C. Fair
Cowles Foundation Discussion Papers
This paper uses a multicountry macroeconometric model to estimate the macroeconomic effects of the U.S. stimulus bill passed in February 2009. The analysis has the advantage of taking into account many endogenous effects. Real U.S. output is estimated to be $554 billion larger when summed over the 12-year period 2009:1–2020:4 (0.29 percent of the total sum of output). The average number of jobs is 509 thousand larger (0.37 percent). There is some redistribution of output and employment away from 2012–2015. At the end of 2020 the federal government debt is larger by $637 billion in real terms (the debt/GDP ratio …
Dynamic Auctions: A Survey, Dirk Bergemann, Maher Said
Dynamic Auctions: A Survey, Dirk Bergemann, Maher Said
Cowles Foundation Discussion Papers
We survey the recent literature on designing auctions and mechanisms for dynamic settings. Two settings are considered: those with a dynamic population of agents or buyers whose private information remains fixed throughout time; and those with a fixed population of agents or buyers whose private information changes across time. Within each of these settings, we discuss both efficient (welfare-maximizing) and optimal (revenue-maximizing) mechanisms.
Targeting In Advertising Markets: Implications For Offline Vs. Online Media, Dirk Bergemann, Alessandro Bonatti
Targeting In Advertising Markets: Implications For Offline Vs. Online Media, Dirk Bergemann, Alessandro Bonatti
Cowles Foundation Discussion Papers
We develop a model with many heterogeneous advertisers (products) and advertising markets (media). Each advertiser has a different consumer segment for its product, and each medium has a different ability to target advertisement messages. We characterize the competitive equilibrium in the media markets and investigate the role of targeting for the price and allocation of advertisements across media markets. An increase in the targeting ability leads to an increase in the total number of purchases (matches), and hence in the social value of advertisements. Yet, an improved targeting ability also increases the concentration of advertising firms in each market. Surprisingly, …
The Role Of Commitment In Bilateral Trade, Dino Gerardi, Johannes Hörner, Lucas Maestri
The Role Of Commitment In Bilateral Trade, Dino Gerardi, Johannes Hörner, Lucas Maestri
Cowles Foundation Discussion Papers
We examine the buyer-seller problem under different levels of commitment. The seller is informed of the quality of the good, which affects both his cost and the buyer’s valuation, but the buyer is not. We characterize the allocations that can be achieved through mechanisms in which, unlike with full commitment, the buyer has the option to “walk away” after observing a given offer. We further characterize the equilibrium payoffs that can be achieved in the bargaining game in which the seller makes all the offers, as the discount factor goes to one. This allows us to identify how different levels …
Introduction To Judgment Aggregation, Christian List, Ben Polak
Introduction To Judgment Aggregation, Christian List, Ben Polak
Cowles Foundation Discussion Papers
This introduces the symposium on judgment aggregation. The theory of judgment aggregation asks how several individuals’ judgments on some logically connected propositions can be aggregated into consistent collective judgments. The aim of this introduction is to show how ideas from the familiar theory of preference aggregation can be extended to this more general case. We first translate a proof of Arrow’s impossibility theorem into the new setting, so as to motivate some of the central concepts and conditions leading to analogous impossibilities, as discussed in the symposium. We then consider each of four possible escape-routes explored in the symposium.
Stochastic Search Equilibrium, Giuseppe Moscarini, Fabien Postel-Vinay
Stochastic Search Equilibrium, Giuseppe Moscarini, Fabien Postel-Vinay
Cowles Foundation Discussion Papers
We analyze a stochastic equilibrium contract-posting model. Firms post employment contracts, wages contingent on all payoff-relevant states. Aggregate productivity is subject to persistent shocks. Both employed and unemployed workers search randomly for these contracts, and are free to quit at any time. An equilibrium of this contract-posting game is Rank-Preserving [RP] if larger firms offer a larger value to their workers in all states of the world. We show that every equilibrium is RP, and equilibrium is unique, if firms differ either only in their initial size, or also in their fixed idiosyncratic productivity but more productive firms are initially …
Optimal Estimation Under Nonstandard Conditions, Werner Ploberger, Peter C.B. Phillips
Optimal Estimation Under Nonstandard Conditions, Werner Ploberger, Peter C.B. Phillips
Cowles Foundation Discussion Papers
We analyze optimality properties of maximum likelihood (ML) and other estimators when the problem does not necessarily fall within the locally asymptotically normal (LAN) class, therefore covering cases that are excluded from conventional LAN theory such as unit root nonstationary time series. The classical Hájek-Le Cam optimality theory is adapted to cover this situation. We show that the expectation of certain monotone “bowl-shaped” functions of the squared estimation error are minimized by the ML estimator in locally asymptotically quadratic situations, which often occur in nonstationary time series analysis when the LAN property fails. Moreover, we demonstrate a direct connection between …
Power Maximization And Size Control In Heteroskedasticity And Autocorrelation Robust Tests With Exponentiated Kernels, Yixiao Sun, Peter C.B. Phillips, Sainan Jin
Power Maximization And Size Control In Heteroskedasticity And Autocorrelation Robust Tests With Exponentiated Kernels, Yixiao Sun, Peter C.B. Phillips, Sainan Jin
Cowles Foundation Discussion Papers
Using the power kernels of Phillips, Sun and Jin (2006, 2007), we examine the large sample asymptotic properties of the t -test for different choices of power parameter (τ). We show that the nonstandard fixed-τ limit distributions of the t -statistic provide more accurate approximations to the finite sample distributions than the conventional large-τ limit distribution. We prove that the second-order corrected critical value based on an asymptotic expansion of the nonstandard limit distribution is also second-order correct under the large-τ asymptotics. As a further contribution, we propose a new practical procedure for selecting the test-optimal power parameter that addresses …
Uniform Asymptotic Normality In Stationary And Unit Root Autoregression, Chirok Han, Peter C.B. Phillips, Donggyu Sul
Uniform Asymptotic Normality In Stationary And Unit Root Autoregression, Chirok Han, Peter C.B. Phillips, Donggyu Sul
Cowles Foundation Discussion Papers
While differencing transformations can eliminate nonstationarity, they typically reduce signal strength and correspondingly reduce rates of convergence in unit root autoregressions. The present paper shows that aggregating moment conditions that are formulated in differences provides an orderly mechanism for preserving information and signal strength in autoregressions with some very desirable properties. In first order autoregression, a partially aggregated estimator based on moment conditions in differences is shown to have a limiting normal distribution which holds uniformly in the autoregressive coefficient rho including stationary and unit root cases. The rate of convergence is root of n when |τ| < 1 and the limit distribution is the same as the Gaussian maximum likelihood estimator (MLE), but when τ = 1 the rate of convergence to the normal distribution is within a slowly varying factor of n . A fully aggregated estimator is shown to have the same limit behavior in the stationary case and to have nonstandard limit distributions in unit root and near integrated cases which reduce both the bias and the variance of the MLE. This result shows that it is possible to improve on the asymptotic behavior of the MLE without using an artificial shrinkage technique or otherwise accelerating convergence at unity at the cost of performance in the neighborhood of unity.
Leverage Causes Fat Tails And Clustered Volatility, Stefan Thurner, J. Doyne Farmer, John Geanakoplos
Leverage Causes Fat Tails And Clustered Volatility, Stefan Thurner, J. Doyne Farmer, John Geanakoplos
Cowles Foundation Discussion Papers
We build a simple model of leveraged asset purchases with margin calls. Investment funds use what is perhaps the most basic financial strategy, called “value investing,” i.e., systematically attempting to buy underpriced assets. When funds do not borrow, the price fluctuations of the asset are approximately normally distributed and uncorrelated across time. This changes when the funds are allowed to leverage, i.e., borrow from a bank, which allows them to purchase more assets than their wealth would otherwise permit. During good times funds that use more leverage have higher profits, increasing their wealth and making them dominant in the market. …
Identification In Differentiated Products Markets Using Market Level Data, Steven T. Berry, Philip A. Haile
Identification In Differentiated Products Markets Using Market Level Data, Steven T. Berry, Philip A. Haile
Cowles Foundation Discussion Papers
We consider nonparametric identification in models of differentiated products markets, using only market level observables. On the demand side we consider a nonparametric random utility model nesting random coefficients discrete choice models widely used in applied work. We allow for product/market-specific unobservables, endogenous product characteristics (e.g., prices), and high-dimensional taste shocks with arbitrary correlation and heteroskedasticity. On the supply side we specify marginal costs nonparametrically, allow for unobserved firm heterogeneity, and nest a variety of equilibrium oligopoly models. We pursue two approaches to identification. One relies on instrumental variables conditions used previously to demonstrate identification in a nonparametric regression framework. …
Identification In Differentiated Products Markets Using Market Level Data, Steven T. Berry, Philip A. Haile
Identification In Differentiated Products Markets Using Market Level Data, Steven T. Berry, Philip A. Haile
Cowles Foundation Discussion Papers
We present new identification results for nonparametric models of differentiated products markets, using only market level observables. We specify a nonparametric random utility discrete choice model of demand allowing rich preference heterogeneity, product/market unobservables, and endogenous prices. Our supply model posits nonparametric cost functions, allows latent costs shocks, and nests a range of standard oligopoly models. We consider identification of demand, identification of changes in aggregate consumer welfare, identification of marginal costs, identification of firms’ marginal cost functions, and discrimination between alternative models of firm conduct. We explore two complementary approaches. The first demonstrates identification under the same nonparametric instrumental …
Leverage Causes Fat Tails And Clustered Volatility, Stefan Thurner, J. Doyne Farmer, John Geanakoplos
Leverage Causes Fat Tails And Clustered Volatility, Stefan Thurner, J. Doyne Farmer, John Geanakoplos
Cowles Foundation Discussion Papers
We build a simple model of leveraged asset purchases with margin calls. Investment funds use what is perhaps the most basic financial strategy, called “value investing,” i.e. systematically attempting to buy underpriced assets. When funds do not borrow, the price fluctuations of the asset are normally distributed and uncorrelated across time. All this changes when the funds are allowed to leverage, i. e. borrow from a bank, to purchase more assets than their wealth would otherwise permit. During good times competition drives investors to funds that use more leverage, because they have higher profits. As leverage increases price fluctuations become …
X-Differencing And Dynamic Panel Model Estimation, Chirok Han, Peter C.B. Phillips, Donggyu Sul
X-Differencing And Dynamic Panel Model Estimation, Chirok Han, Peter C.B. Phillips, Donggyu Sul
Cowles Foundation Discussion Papers
This paper introduces a new estimation method for dynamic panel models with fixed effects and AR( p ) idiosyncratic errors. The proposed estimator uses a novel form of systematic differencing, called X -differencing, that eliminates fixed effects and retains information and signal strength in cases where there is a root at or near unity. The resulting “panel fully aggregated” estimator (PFAE) is obtained by pooled least squares on the system of X -differenced equations. The method is simple to implement, free from bias for all parameter values, including unit root cases, and has strong asymptotic and finite sample performance characteristics …